RBS tally for RMBS settlements reaches $6 billion

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Royal Bank of Scotland Group has agreed to pay $500 million to the state of New York to settle a probe into its marketing and sale of toxic residential mortgage-backed securities before the financial crisis, moving the government-owned lender another step closer to resolving a series of costly U.S. investigations.

The deal between RBS and New York Attorney General Eric Schneiderman boosts the bank’s RMBS settlement costs to $6 billion in less than a year. In July 2017, the Edinburgh-based lender agreed to pay $5.5 billion to the U.S. Federal Housing Finance Agency to resolve a parallel investigation.

A separate probe by the Justice Department is still pending.

RBS will pay New York $100 million in cash and $400 million for residents who were hurt by the housing crash, Schneiderman said Tuesday. The deal boost’s New York’s RMBS recoveries from a half dozen banks to $3.7 billion, Schneiderman said.

JPMorgan Chase and Bank of America previously paid $1 billion and $800 million respectively to settle New York’s investigations. Citigroup, Morgan Stanley and Goldman Sachs also settled.

A message left with RBS’s press office after regular business hours in the U.K. wasn’t immediately returned.

RBS still has exposure on the RMBS issue. Federal prosecutors in Boston have investigated the bank and explored the possibility of bringing charges against individual employees. People familiar with the investigation told Bloomberg last year that a settlement was close, but that turnover among senior officials at the Justice Department could slow the process.

Under the New York deal, RBS admitted to selling investors RMBS that were backed by mortgage loans that didn’t "materially comply with underwriting guidelines," the attorney general said.

The bank’s own diligence vendors warned it that many of the loans it snapped up for securitization didn’t conform to underwriting guidelines as RBS told investors, the attorney general said.

"Yet, RBS packaged and sold them anyway," the attorney general said.

RBS was taken over by the U.K. government during the financial crisis in the biggest bank bailout in history, meaning the settlement is being funded by taxpayers.

“While the financial crisis may be behind us, New Yorkers are still feeling the effects of the housing crash,” Schneiderman said. “Home values plummeted. Vacant homes consumed neighborhoods. And for many New Yorkers, affordable housing fell out of reach."

RBS’s deal with Schneiderman hinges on "significant community-level relief," according to the attorney general. That includes money to spur the construction of more affordable housing, investment in land banks and the purchase of distressed properties to keep them out of the hands of predatory investors, the attorney general said.

Bloomberg News